Legal ‘Inside Info’ Preferred
By Samuel Kraigwest
A Guide to International Investing:
Unstable Government? Buy it.
Happy Businesses? Short it
When a government fails – whether due to warfare, failure to provide services, or insolvency and cutbacks – the citizens of the country go through several psychological stages … -MarketPsych
MarketPysch is an agglomerator of data that produces certain conclusions about investing around the world; a recent blog post of theirs brings up significant investing questions when it comes to global speculation and how such strategies really work. The company gathers data and then mines it – seemingly using free-market business cycle techniques – to draw conclusions it then provides to its clients.
If I have any issue with the article or the system that it is describing, it is that investing – especially in individual equities around the world – is more of an art form than a statistical exercise.
Now the article’s authors might agree with this, but in this offering they put a good bit of emphasis on analysis, drawing certain conclusions, especially about sociopolitical and economic instability, from the data they generate.
Is such data useful?
Yes, to a point … But it is also true that some professional investors are more successful than others.
If investment success was simply due to an agglomeration of numbers and results, then anyone could do it given the right database. There is only one George Soros isn’t there (and thankfully so, I can hear some of you saying)!
Anyway, success probably has to do with market intuition as much as statistical conclusion. It has to do with a certain mathematically sensibility for lack of a better descriptive phrase. Certain investment techniques, it is true, can be learned. But genius is essentially inscrutable.
Of course MarketPsych has a strategy to offer, and in no way to I intend to downplay what they’ve created. It sounds both impressive and intriguing: “At MarketPsych we perform semantic analysis on 2 million articles daily from social and news media … Our software scans the content of each article in the news and social media flow and quantifies sentiments expressed about specific companies and locations.”
Very good. Obviously a useful tool.
The author explains that when governments fall, many businesses tend to fail; general chaos reigns and bargains are to be had. “When Communism fell, goods became exceptionally cheap. And this mispricing is how most Russian oligarchs made their fortunes, buying commodities at unadjusted Soviet prices and exporting them to Europe for global market prices.”
He explains that in both Africa and Central Asia “government instability drove out nervous investors” … but that “the crazy and courageous who stayed behind, if they survived, profited tremendously.”
This observation is then linked to one by “our phenomenal new data scientist, Changjie Liu,” who made a profound statistical observation that confirmed “the powerful predictive nature of government instability, and other sentiments, in our Country-level sentiment data.”
We also have this: “Greater government instability reported in the media signals an excellent opportunity for intrepid investors.” It is here that I depart most seriously from the article’s presentation and perspective. First of all, government instability may be beneficial for risk-takers on the ground. That doesn’t mean it will be similarly productive for those who are investing from afar.
Second, investments to be had in such instances may be better found in private deals, quietly conducted without much or any scrutiny. That’s what took place in part in Russia, to use the author’s own example. There wasn’t much available within a public market context at the time when current Russian fortunes were being built. The real opportunities were little known and often only available to a few.
In other words, the most promising speculations take place within the community among those who are either affiliated with the chaos or known how to benefit from it.
Another conclusion that can be drawn from all of this has to do with finding a trusted advisor within the context of the target marketplace. Nothing succeeds like (legal) inside information. Not even statistical pattern analysis. Though that certainly that has a place, and MarketPsych certainly has an interesting and impressive-sound system …
Samuel Kraigwest is longtime commenter on the markets who grew up in the US but now travels the world in search of promising investments and the ever-elusive “best martini.” Formerly a journalist, an educator, a bartender and a surfer, Kraigwest is also a contrarian investor who uses all of his life experience and painfully gathered investment knowhow to communicate the hard-truths of 21st century investing.
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